For new and even long term business operators, getting your head around the terminology used in the financial services sector can be challenging to say the least. The names of the different loan products usually relate back to the lender's role in the agreement and isn’t always a commonly used definition of some words.
Rent-to-Own is a case in point. No, this is not the same as hiring a truck. It is actually a type of truck loan. To clarify, we providing a simple explanation of Rent-to-Own truck finance to expand your knowledge base and hopefully provide a greater level of understanding of the truck loan options that Jade Truck Loans offers.
- Rent and hire are words commonly associated with the short-term use of trucks and equipment. You need an extra or a specialised truck for a job so you hire one from a truck hire business. Use it as booked and pay the daily, weekly or hourly rate for the use, then return it.
- Rent-to-Own is a type of business loan used primarily for the purchase of trucks and equipment.
- It is a type of loan or more correctly – a commercial finance facility.
- Rent-to-Own is a type of loan where you are ‘renting’ the truck from the lender and working towards ownership.
- It is often called Rent-to-Buy or an Operating Lease.
How Rent-to-Own loan work?
- Rent-to-Own truck loan agreement is between a lender and borrower for, in this example, the purchase of a truck.
- The borrower selects the truck they want to buy and negotiates the purchase price deal with the seller or truck dealer.
- The borrower discusses with their accountant which type of truck loan is best suited to their business.
- If Rent-to-Own is agreed as the most appropriate, the borrower briefs their Jade Truck Loans consultant to source a quote for a Rent-to-Own truck loan to purchase that truck and the loan process proceeds as for all our other loans.
- The detail and differences from other loan types is in the structure of the loan as outlined in the contract.
- The lender ‘purchases’ the truck and enters into a ‘rental’ agreement with the borrower for use of that truck for a set period. That period is known as the loan term.
- From that point, the lender retains the ownership of the truck but the borrower has full use of the vehicle.
- The borrower is responsible for the ongoing operating costs and expenses of the truck.
- The borrower pays a set monthly payment to the lender, which we refer to as the repayments.
- At the end of the rental or loan term, which can be up to 5 years, the lender owns the truck. The borrower can then negotiate with the lender a suitable purchase price to take over the full ownership. Alternatively, the borrower can move on to purchase a new vehicle.
From our perspective as your truck finance broker, we set up the key aspects of your Rent-to-Own loan on the same basis as we do for all commercials loans: the interest rate is fixed, the rent-to-own or loan term is also fixed and the monthly amount you pay to the lender is fixed.
Accounting Features and Benefits
As with all the truck loan products offered by Jade Truck Loans, Rent-to-Own presents a set of features that may benefit certain types of businesses. We always recommend that business owners refer to their financial controller or accountant to see which loan type will realise the greatest benefit to their business. Your finance person is usually in the best position to make that call because they usually have in-depth knowledge of your accounting method and other financial goals.
- This type of loan is known as an ‘off-balance sheet’ loan because the lender retains the ownership, the truck is entered on their balance sheet as an asset or liability. That is, it’s ‘off the balance sheet of the borrower and this may improve the borrower’s balance sheet.
- In regard to the accounting basics:
- The monthly payments are treated as an operating expense and so they are usually tax-deductible.
- GST is charged on the monthly payments and can be claimed by the borrower on the relevant monthly or quarterly BAS.
Is Rent-to-Own the loan type for you?
In the lending sector, this type of truck loan is commonly referred to as suitable for businesses that need to upgrade their truck(s) on quite a regular basis or for operators that need full use of a truck but their business structure from an accounting perspective doesn’t suit full ownership.
This loan type can be used for the purchase of both new and used trucks. Some lenders may have specific requirements in regard to older trucks.
Other truck loan types or commercial finance facilities available to businesses include Chattel Mortgage, Truck Leasing and Commercial Hire Purchase.
Sourcing a Cheap Rent-to-Own Deal
Your Jade Truck Loans consultant can swiftly provide you a quote on this or any other type of truck finance. On acceptance of the quote, we will assist you with the paperwork, streamlining the process for you. You might wonder, how can we achieve such cheap interest rates?
For further details on various truck loans, please visit our web pages, or simply give us a call to discuss your specific truck purchase requirements.
Contact Jade Truck Loans on 1300 000 003 to discuss your lending requirements.
DISCLAIMER: THE INFORMATION PROVIDED IS FOR GENERAL CONSIDERATION. ANY REFERENCE TO OFFICIAL GOVERNMENT POLICIES HAS BEEN SOURCED FROM AUSTRALIAN GOVERNMENT AND STATE GOVERNMENT SOURCES. INFORMATION ON INDIVIDUAL VEHICLE SPECS IS SOURCED FROM THE MANUFACTURER WEBSITE. NO LIABILITY IS ACCEPTED FOR ANY ERRORS IN PRESENTATION OR INTERPRETATION OF THE FACTS AS PROVIDED BY THESE SOURCES. WE ADVISE ALL INDIVIDUALS AND BUSINESSES TO REFER TO THEIR ACCOUNTANT OR FINANCIAL ADVISOR FOR PROFESSIONAL ADVICE SPECIFIC TO THEIR INDIVIDUAL CIRCUMSTANCES.